A collection of observations, news and resources on the changing nature of innovation, technology, leadership, and other subjects.

October 08, 2018

Automation and the Changing Demand for Workforce Skills

In 2015, the McKinsey Global Institute launched a multi-year study to explore the potential impact of automation technologies on jobs, organizations and the future of work.In the intervening three years, the study has published a number of report on the subject.

The first report, published in November, 2015, explored whether we can look forward to vast improvements in productivity and quality of life, or whether automation will mostly threaten jobs, disrupt organizations, and strain the social fabric. Based on an analysis of around 2,000 work activities across 800 different occupations, the report concluded that “fewer than 5 percent of occupations can be entirely automated using current technology.However, about 60 percent of occupations could have 30 percent or more of their constituent activities automated.”In other words, relatively few jobs will be entirely automated, but automation will likely transform the vast majority of occupations.

McKinsey’s December, 2017 report analyzed whether there will be enough work in the future.The overall conclusion was that a growing technology-based economy will create a significant number of new occupations, - as has been the case in the past, - which will more than offset declines in occupations displaced by automation.However, “while there may be enough work to maintain full employment to 2030 under most scenarios, the transitions will be very challenging - matching or even exceeding the scale of shifts out of agriculture and manufacturing we have seen in the past.”

Let me now discuss the more recent report published earlier this year, which examined the changes in skills required of human workers over the next 10-15 years.To do so, the study analyzed how the total number of hours worked in 25 different skill areas has changed between 2002 and 2016 and estimated the expected change in hours worked by 2030.This was done for the US and 5 Western European countries. I’ll focus my discussion on the US skill changes, as the European changes were similar.

In aggregate, the total hours worked for all 25 skills went up by around 8% between 2002 and 2016, - from 266 billion hours to 287 billion, - and are expected to grow an additional 8% by 2030 to 310 billion hours.The report classified the 25 skills into 5 broad categories: physical and manual, basic cognitive, higher cognitive, social and emotional, and technological. Let me summarize how skills are changing in each of the 5 categories.

Physical and manual skills include general equipment, operation and navigation; general equipment repair and mechanical; craft and technician skills; fine motor; gross motor and strength; and inspecting and monitoring.While representing the single largest percentage of hours worked in the US, physical and manual skill hours have been declining for the past 15-20 years, from 33% of the total hours in 2002, to 31% in 2016, and are expected to further decline to around 26% of total hours worked by 2030.

Basic cognitive skills include basic literacy, numeracy and communication; and basic data input and processing.They were 20% of total hours worked in 2002, 18% in 2016, and are expected to decline to around 15% of hours worked by 2030, the largest category decline.This is not surprising.Work activities that require only basic cognitive skills are the most susceptible to automation.

Higher cognitive skills include advanced literacy and writing; quantitative and statistical skills; critical thinking and decision making; project management; complex information processing and interpretation; and creativity.Unlike basic cognitive skills, whose percentage of hours worked exhibited the largest decline between 2016 and 2030, the percentages of total hours worked for high cognitive skills have been fairly steady: 21% in 2002, and 22% in both 2016 and 2030.By 2030, demand for such skills will grow particularly fast for creativity, critical thinking and processing complex information, while declining for advanced literacy and writing.

Social and emotional skills include advanced communication and negotiation skills; interpersonal skills and empathy; leadership and managing others; entrepreneurship and initiative-taking; adaptability and continuous learning; and teaching and training others.Demand for workers with good social and emotional skills, - the kinds of skills that machines are far from mastering, - rose slightly from 17% of total hours worked in 2002 to 18% in 2016, but are expected to rise sharply to 21% in 2013.Entrepreneurship, leadership and interpersonal skills will exhibit the fastest growth.

Technological skills include basic digital skills; advanced IT skills and programming; advanced data analysis and mathematical skills; technology design; engineering, and maintenance; and scientific research and development.Not surprisingly, given the nature of the digital economy, demand for technological skills will continue to accelerate, - from 9% of total hours worked in 2002 to 11% in 2016, and 16% by 2030.The fastest growth is expected in advanced IT and programming skills and in basic digital skills, which could grow by 90% and 70% respectively over the next 10-15 years.

The McKinsey study also surveyed over 3000 C-suite executives in seven advanced economies, - the US, Canada, France, Germany, Italy, Spain and the UK.The survey confirmed the study’s quantitative findings.Advanced IT and programming are the most important skills needed in the next three years.Higher cognitive and social and emotional skills will also be in high demand.But physical and manual skills, as well as basic cognitive skills will continue to decline.

In addition, the survey found that, to stay competitive, companies need to make significant organizational changes while addressing these skill shifts, including a strong emphasis on continuous learning and an increase in cross-functional and team-based work.“As tasks change, jobs will need to be redefined and companies say they will need to become more agile. Independent work will likely grow.Leadership and human resources will also need to adapt: almost 20 percent of companies say their executive team lacks sufficient knowledge to lead adoption of automation and artificial intelligence.Almost one in three firms are concerned that lacking the skills they need for automation adoption will hurt their future financial performance.”

Jobs will keep changing through the automation of some of their constituent activities.This will lead to the creation of new kinds of jobs that previously required highly skilled, hard-to-find talent but which can now be done by mid-skill workers with the help of advanced tools.Noteworthy among these changes is the creation of so-called new collar jobs, a new kind of mid-skill occupations, neither traditional blue or white collar, that many industries are looking for but remain largely unfilled.

To build the workforce of the future, the report recommends that companies embrace five main types of actions:

Retrain - Raise skill levels of employees by teaching them new or more advanced skills.This ensures that in-house functional knowledge, experience and understanding of company culture are preserved;

Redeploy - Shift parts of the workforce by redefining work tasks or redesigning processes to make better use of the skill capacities already available in-house;

Hire - Acquire individuals or teams with the required skill sets.While subject to the supply of talent in the market, the total cost of hiring might be lower than other options, including retraining;

Contract - Leverage external workers, such as contractors, freelancers, or temporary workers.This allows companies to rapidly acquire the needed skills if the talent is available; and

Release - This option might be necessary in industries that are not growing rapidly enough or in which automation can significantly replace workers.It can often be accomplished by reducing or freezing new hiring and waiting for normal attrition and retirement

“Almost half of the companies we surveyed say they expect to take the lead in building the workforce of the future, but all stakeholders will need to work together to manage the large-scale retraining and other transition challenges ahead,” noted the McKinsey report. “Firms can collaborate with educators to reshape school and college curricula.Industry associations can help build talent pipelines, while labor unions can help with cross-sector mobility.Governments will need to strengthen safeguards for workers in transition and encourage mobility, including with a shift to portable benefits, as ways of working and the workplace itself are transformed in the new era.”